- Oops!Something went wrong.Please try again later.
If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Shoe Carnival (NASDAQ:SCVL) looks great, so lets see what the trend can tell us.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Shoe Carnival:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.26 = US$154m ÷ (US$784m - US$194m) (Based on the trailing twelve months to July 2021).
Thus, Shoe Carnival has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 19%.
Historical performance is a great place to start when researching a stock so above you can see the gauge for Shoe Carnival's ROCE against it's prior returns. If you're interested in investigating Shoe Carnival's past further, check out this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
We like the trends that we're seeing from Shoe Carnival. Over the last five years, returns on capital employed have risen substantially to 26%. The amount of capital employed has increased too, by 55%. So we're very much inspired by what we're seeing at Shoe Carnival thanks to its ability to profitably reinvest capital.
What We Can Learn From Shoe Carnival's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Shoe Carnival has. Since the stock has returned a staggering 187% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
On a final note, we've found 1 warning sign for Shoe Carnival that we think you should be aware of.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.